European markets were lower generally over the month. Focus has switched from macroeconomic issues to company results. Results have been mixed, though there are tentative signs that some of the more economically sensitive areas of the market are starting to see some stabilisation of demand.
The fund was flat, in performance terms, over the month. Positive results from some of the fund’s industrial businesses, including Hexpol (advanced polymer compound producer), Valmet (equipment and services to the pulp and energy markets), and BE Semiconductor (packaging equipment for semiconductor industry) drove good share price performance. Bank of Ireland, and D’Ieteren (a recent addition to the fund) also performed strongly over the month.
On the negative side, Subsea 7 (oil services) was weaker, as continued lower oil prices are delaying the expected capex increases from oil producers. This feels like a timing issue, and with the stock trading at a material discount to book value and with a net cash balance sheet, we took advantage of the recent weakness and added to our holding. Kaufman and Broad, the French housebuilder, was also weaker over the month, on short term concerns about disruption to planning from the upcoming French Municipal elections. Having spoken to the company, we feel that this is a short-term timing issue, rather than a fundamental concern and remain very comfortable with our investment.
The fund made one new purchase over the month. Recticel specialises in polyurethane processing. It is streamlining its operations, following a failed attempt by a competitor to buy the business. Growth prospects are good for the insulation business which the company will focus on, and the free cashflow yield is attractive at almost 7%.
The fund took profits in Bravida, exiting the holding. Recent strong share price performance at the Swedish heating ventilation and electricity specialist has driven the valuation up to less attractive levels and it was felt that we had better opportunities elsewhere. We also sold Aubay from our IT services cluster, adding to other existing holdings in the area on more attractive valuations.